Electric Car Subsidies :Your Tax Dollars Down The Toilet

While we are looking for places to come up with savings in the federal budget, its time that we looked at cutting the federal subsidies for electric cars. Through its loan and subsidy program, the United States is creating a market for a product where the is no demand. The problem with buying demand is that once the payments go, the demand flies away also.

Much of the electric and hybrid car business is in the US are subsidized by the US Govt.In 2010, one fourth of GM and Ford’s hybrids were purchased by the federal government. Nissan got a $1.4 billion dollar loan from the feds to develop their electric car, the Leaf. Several thousands of dollars in tax credits per car have to be shelled out to make these models attractive for sale.

This past December, the Marshall Policy Institute released a new study (embedded below) weighing the costs and benefits of the U.S. government’s subsidization of the electric car. It exposes the fact that the government is inefficiently creating demand where little exists, using tax dollars to push a technology into the market results in a mis-allocation of resources just like cash for clunkers did. This unsound policy makes it more difficult to reduce the federal deficit, is not sound energy policy and it fails to substantially address the environmental issues at which it is aimed.

As the study says, even the all electric cars are not zero emissions vehicles, they are “emissions elsewhere vehicles” when you include emissions associated with the charging. Since coal is the dominant electric power source, those increased coal emissions may offset the reduction in tailpipe emissions.

By looking at the sales trends the Marshall Institute demonstrates that these cars not commercially viable without the large government subsidies. The demand for the current generation of hybrids has dropped as gasoline prices declined from their 2008 highs. Analysts have estimated that gasoline would have to increase to $4 a gallon or more to stimulate demand for hybrid electric vehicles. The study concludes that: “Without subsidies and political pressure, it is doubtful that there would be much demand, except by the wealthy early adopters who want to make an environmental statement.”

A recent article in the Washington Post by Charles Lane rhetorically asks why electric vehicles continue to be pushed “despite mounting evidence that the vehicles serve no particular purpose, environmental or economic?”It goes on to state that even with substantial subsidies, these cars cost too much, they do not reliably reduce greenhouse gas emissions, and are an inefficient means to achieve gasoline savings. The Wall Street Journal has reached similar conclusions as have independent research organizations like J.D. Powers and Associates.

They concluded that higher vehicle cost and reduced performance and comfort are a trade off for increased fuel economy. In addition, potential fuel savings have to be reduced by premium fuel requirements and higher electricity costs. Professor George Hoffer, a transportation expert at Virginia Commonwealth University, estimates that a Leaf owner would have to drive 150,000 miles to break even at current gasoline prices.19 The Leaf battery is only guaranteed for 75,000 miles, so a replacement would be needed in addition to other maintenance. When General Motors introduced the EV-1 to meet California’s zero emission regulation, it got around this problem by leasing vehicles instead of selling them.

Then again there are other reasons to get a Hybrid, for example in NYS owning a Hybrid can get you into the HOV lane even though you have no passengers (which is the reason I own a Prius). On the other hand there is still a lot of mileage you can get out of an internal combustion engine.

The Chief Executive of Ford Motor Company, in an interview with CEO Magazine, stated “the internal combustion engine has a lot of room for improvement.” He went on to mention direct-fuel injection, turbo-charging, integrated electronic, new light weight materials, and improved air flow. J.D. Power and Associates identified other ICE improvements, such as variable valve timing, cylinder deactivation, and start-stop technology. Together these technology improvements could result in a 40% reduction in oil use, according to the NAS. The newest generation diesel engines, although more expensive than ICEs, could also increase miles-per-gallon efficiency by 30% or more.

Electric cars are turning out to be a typical example of what happens when the government picks winners in the marketplace rather than let the market pick the winners. We now have government inefficiently using tax dollars to create a market that isn’t there. There is a reduced incentive to improve battery technology as long as the government subsidizes the market. The government will have to continue to subsidize the hybrid, hybrid electric, and electric car marketplace for the foreseeable future or else it will collapse from the reduced demand.